With its stock already up 40% year to date, one of the hottest growth stocks right now is Micron Technology (MU 3.21%). The memory maker is benefiting from what looks like a supercycle for DRAM (dynamic random access memory) and NAND (flash memory). Best of all, this looks like it is just the start of the cycle.
Micron derives about 80% of its revenue from DRAM, which is used for short-term memory needs, given its speed, and the rest from NAND, which is used for long-term memory storage.
The DRAM market is getting a huge lift from the artificial intelligence (AI) infrastructure buildout, as graphics processing units (GPUs) and other AI chips need to be packaged with a special form of DRAM called high bandwidth memory (HBM) for optimal performance. With the AI data center market booming, demand for HBM, not surprisingly, has also skyrocketed.
Image source: Getty Images.
However, there is another factor at play that has tightened the DRAM market even further. HBM requires upwards of three times the wafer capacity of ordinary DRAM, which is greatly impacting the supply chain for the entire DRAM market. This has left the entire market in short supply, causing prices to surge.
At the same time, the NAND market is also in short supply. After a period of oversupply and negative gross margins for flash memory, following a big pull-forward in demand for electronics coming out of the pandemic, the big three memory makers slashed NAND production and turned their focus to DRAM.
However, AI also needs massive, solid-state drives containing flash memory to hold training data, so demand for NAND has surged following production cuts. Given the superior unit economics and long-term contracts tied to HBM, most big memory makers have been in no rush to increase NAND capacity and have just been enjoying the rising prices.
NASDAQ: MU
Key Data Points
A memory market winner
Micron, meanwhile, is in the sweet spot, enjoying the current highly favorable conditions of the memory market. It's essentially sold out of its HBM capacity for the year and is working to increase its production to meet the 40% annual growth it sees for HBM over the next few years.
Meanwhile, higher prices aren't just leading to surging revenue; they're also resulting in ballooning gross margins. Last quarter, Micron's revenue soared 57%, while its gross margins expanded from 38.4% to 56%.
With the current supply situation for DRAM and NAND expected to remain tight for the foreseeable future, and HBM contracts locked up for the long term, Micron is in a strong position moving forward.
Meanwhile, the stock is still cheap, trading at a forward P/E of 12 times fiscal year 2026 analyst estimates (ending August 2026) and just above 9 times the fiscal 2027 consensus. With the HBM market looking more like a long-term structural tailwind than simply part of a normal cyclical cycle, Micron looks like an attractive AI stock to own at current levels.
